Second Circuit Limits Pre-Judgment Asset Freezes in Contract Cases

Plaintiffs in commercial disputes often face a troubling issue: no matter how strong their case may be on the merits, will there be assets available to collect? As the saying goes, an uncollectable judgment is not worth the paper it is printed on. What if it appears that the defendant does not have sufficient assets to pay a likely judgment or — even worse — that the defendant is liquidating and dissipating assets? Can the plaintiff obtain a temporary restraining order to freeze the defendant’s assets and stop a liquidation/dissipation?

The U.S. Court of Appeals for the Second Circuit recently answered this question in the negative, holding that, absent some security interest in specific assets, a plaintiff suing for money damages from a contract breach is not entitled to an injunction freezing defendants’ assets. In Leadenhall Capital Partners LLP v. Advantage Capital Holdings LLC, No. 24-2647 (2d Cir. Mar. 23, 2026), the plaintiffs, lenders under a loan and security agreement, accelerated approximately $600 million in debt after discovering alleged deficiencies in the borrowers’ collateral. They sued both the borrowers and affiliated guarantors for breach of contract; the borrowers had pledged (or promised to pledge) specific assets, but the guarantors provided no liens or security interests. The U.S. District Court for the Southern District of New York granted a preliminary injunction freezing the assets of the borrowers and the guarantors. Significantly, the district court based its decision to enjoin the guarantors because “the guarantors guaranteed performance of all the borrowers’ obligations to [plaintiff],” including to acquire and pledge sufficient collateral to secure the debt.

On appeal, the Second Circuit vacated the injunction as it applied to the guarantors, but affirmed the injunction against the borrowers. Relying on the Supreme Court’s decision in Grupo Mexicano De Desarrollo, S.A. v. Alliance Bond Fund, Inc., 527 U.S. 308 (1999), the Court held that a federal court lacks equitable authority to freeze a defendant’s assets in advance of judgment where the plaintiff asserts only a claim for money damages and has no lien or equitable interest in those assets. The Court emphasized that the lenders held a security interest in the borrowers’ collateral but had no such interest in the guarantors’ assets, nor did the guarantors pledge collateral. Accordingly, the lenders were unsecured creditors as to the guarantors and could not obtain a pre-judgment asset freeze of the guarantors’ assets based solely on a contract claim.

The Court further rejected the argument that the lenders’ request for “specific performance” (i.e., requiring the guarantors to provide collateral or preserve assets) created an equitable interest. The Court held that the relief sought was, in substance, a demand for payment of money due under a contract — “quintessentially” legal relief — and therefore insufficient to support equitable relief. The Court also declined to affirm on the alternative basis of a state-law order of attachment, noting that such relief requires a separate showing and factual findings that were not made by the district court.

Key Takeaways for Commercial Parties

This decision reinforces a critical limitation for commercial litigants: absent a lien or identifiable equitable interest in specific property, a plaintiff seeking money damages for breach of contract generally cannot freeze a counterparty’s assets before judgment. Even strong evidence of default, insolvency risk, or asset dissipation will not, by itself, justify a pre-judgment injunction in federal court. The ruling underscores the continuing force of Grupo Mexicano and the sharp distinction between legal claims for payment and equitable claims tied to specific property.

For lenders and commercial contracting parties, the case highlights the importance of structural protections at the contracting stage. If asset preservation is a priority, parties should consider obtaining security interests, collateral pledges, or other mechanisms that create a direct property interest in specific assets, rather than relying on guarantees alone. Absent such a security interest, the Second Circuit recognized some second-best options: creditor plaintiffs do “have an ‘arsenal’ of options available to them, including ‘bankruptcy, fraudulent conveyances, and preferences’” or, alternatively, litigants could consider state-law attachment remedies, such as New York’s attachment provisions set forth in CPLR 6201, and whether plaintiff can make the necessary evidentiary showing.

In short, the Leadenhall decision underscores that creditor equitable remedies are largely determined at the time of contracting — not after default.

© Arnold & Porter Kaye Scholer LLP 2026 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.